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Clarity

Dr. Sean Wise

Toronto, Canada Area

Over $2B in capital raised for seed stage startups over the last 15 years. I've made 13 seed investments this year alone. I've spent the last 15 years in Venture Capital. 20,000 elevator pitchers heard. 5 seasons with Dragons' Den / 3 seasons with The Naked Entrepreneur. 2014 Mentor of the Year, Startup Canada

Answers

Users are a sign of traction a.k.a. proof of concept. Most angel investors want to fuel growth and help you strive for product market fit. If you're following the lean startup model - most angels will only engage once you found problem solution fit and are reaching for product market fit.

You should not scale until you reach product market fit. You should not scale unless of your cost of acquisition is greatly below your lifetime value of customer. You need to know how to run profitably small before you scale big.

That being said a good benchmark is don't scale until 40% of your users would pay rather than lose your solution.

I have worked with startups for more than 15 years, mostly as a seed stage (pre revenue) VC.

More and more, funders and other stakeholders look towards third party proof points (e.g. users). If you can build a mock up or MVP great, but even a simple landing page with EOI proves that what you are working on may have legs.

Better to test, early and often is what the Lean Startup teaches us. Once you have proven something, only then move on, invest more, and build out. First search for problem/solution fit, then product / market fit, then scale.

If you'd like to discuss, drop me a follow up note and I can share more thoughts and resources.

Great question. I have spent 15 years in the seed stage startups and now is a great time to be building and funding a mobile startup. We (my seed VC fund) invest in a lot of mobile startups that are pre revenue. Typically in the range of $50,000 for 5%.

That being said, having an MVP isn't enough. First try to bootstrap your way to early users. Customers are better than investors for a variety of reasons, including: no dilution and access to user feedback. Then try kickstarter, especially if this is a b2c app. Nothing proves you have a hot product like early users, especially those early users willing to put their money in first.

Next I might turn to an accelerator like Techstars or DreamIT. This programs offer you way more than just cash. These programs offer: mentorship, education and buzz. All very helpful assets in the early days.

While I agree with Tom, I think you might also try some crowd funding. Nothing confirms demand like users buying before it exists.

Use a video walk through of the iOS app to demonstrate the product, then reach out to the android community to see if it resonants with them. If it does they will pay. If it doesn't then be happy you didn't sink money into building it first.

Actually this is an accounting issue commonly referred to as "revenue recognition". How you recognize and record sales is dictated by both the tax regulations and corporate policy.

Go to the website of your national government tax agency and input "revenue recognition".

As long as you comply with generally accepted accounting principles (GAAP) most likely be fine. But FYI, we recommend our portfolio companies track revenue as money in the bank and sales as part of the sales funnel.

Give a Google of "talent triangle". I have found that the majority of successful start ups have people with: Business acumen, domain knowledge and operational experience. E.g. (reverse order) someone who understands how to build it, someone who understands what customers want and someone who can help execute. A hacker, a designer and a hustler.

Of those three corners in the talent triangle what are you weakest on? Let that guide you.

What are some things that first time entrepreneurs should consider? In general or before quitting their day job?

I wrote a book on this topic with legendary investor Brad Feld. We based it on hearing more than 20,000 opportunity pitches. On Dragons Den on Shark Tank and first hand in our decades in the seed stage startup industry.

We found entrepreneurs should not quit their day jobs until they have:

- found something you are obsessed with
- enough money to live for 6 months
- found an unmet market need that they have unique insight on
- tested it with early adopters
- confirmed that your solution could add exponential value to those early adopters

We also found that access to early adopters was a key Barrier. One often mitigated when the founder is also a customer (ie member for the customer segment).

Reviews

I HIGHLY recommend consulting with Dr Wise. He provides very specific, actionable advice and we ended the call with clarity of direction to my intended destination, which is priceless in time and resources saved! Plus, he’s a super cool guy with an excellent Children’s Charity being donated to with these calls ...so reach out to him!